Correlation Between Washington Trust and CullenFrost Bankers

Can any of the company-specific risk be diversified away by investing in both Washington Trust and CullenFrost Bankers at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Washington Trust and CullenFrost Bankers into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Washington Trust Bancorp and CullenFrost Bankers, you can compare the effects of market volatilities on Washington Trust and CullenFrost Bankers and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Washington Trust with a short position of CullenFrost Bankers. Check out your portfolio center. Please also check ongoing floating volatility patterns of Washington Trust and CullenFrost Bankers.

Diversification Opportunities for Washington Trust and CullenFrost Bankers

0.96

Correlation Coefficient

Washington Trust  CullenFrost Bankers

Almost no diversification

The 3 months correlation between Washington and CullenFrost is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Washington Trust Bancorp and CullenFrost Bankers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CullenFrost Bankers and Washington Trust is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Washington Trust Bancorp are associated (or correlated) with CullenFrost Bankers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CullenFrost Bankers has no effect on the direction of Washington Trust i.e., Washington Trust and CullenFrost Bankers go up and down completely randomly.

Pair Corralation between Washington Trust and CullenFrost Bankers

Given the investment horizon of 90 days Washington Trust is expected to generate 1.03 times less return on investment than CullenFrost Bankers. In addition to that, Washington Trust is 1.38 times more volatile than CullenFrost Bankers. It trades about 0.06 of its total potential returns per unit of risk. CullenFrost Bankers is currently generating about 0.09 per unit of volatility. If you would invest  9,864  in CullenFrost Bankers on September 2, 2024 and sell it today you would earn a total of  4,198  from holding CullenFrost Bankers or generate 42.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Washington Trust Bancorp  vs.  CullenFrost Bankers

Washington Trust Bancorp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Washington Trust Bancorp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Washington Trust demonstrated solid returns over the last few months and may actually be approaching a breakup point.

CullenFrost Bankers

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CullenFrost Bankers are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile technical and fundamental indicators, CullenFrost Bankers reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Washington Trust and CullenFrost Bankers

The main advantage of trading using opposite Washington Trust and CullenFrost Bankers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Washington Trust position performs unexpectedly, CullenFrost Bankers can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in CullenFrost Bankers will offset losses from the drop in CullenFrost Bankers' long position.

The idea behind Washington Trust Bancorp and CullenFrost Bankers pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..